1. Technical Field
The present disclosure relates generally to securities information technology systems, and more particularly, to a computerized system and method for rating an underlying asset of a securitized instrument, such as, without limitation, a commercial mortgage-backed security.
2. Background of Related Art
A security is a financial instrument having a value based on the value of one or more underlying assets. Securities may be characterized by the underlying asset type, e.g., debt securities (e.g., bonds, mortgages, commercial paper, and loans), equity securities (e.g., shares of common stocks), and derivative contracts (e.g., forwards, futures, options and swaps). However, in practice, any type of asset can be pooled into a security. The assets which comprise a security may be selected in part upon the investment goals of the security, e.g., risk level, income production, capital appreciation, tax minimization, short- or long-term financial investment, whether an indefinite term (an open-ended security) or a fixed maturity date (a closed-ended security) is desired, and so forth. Pooling assets into a security instrument may also reduce the risks associated with any one underlying asset by spreading risk among the plurality of assets held in the security. In this manner, an unfavorable return on one asset may be offset by favorable returns on other assets held within the security. Securities also enable smaller or individual investors to participate in the market which would otherwise require capital outlays beyond the means of such investors.
A commercial mortgage-backed security (CMBS) is a type of security typically having as its assets a pool of mortgages held on commercial real estate properties, such as without limitation, office and apartment buildings, hotels, warehouses, industrial parks, and retail centers and malls. A single CMBS may include many individual mortgage loans of varying size, property type and location. The selected commercial mortgages are pooled and transferred to a trust. In turn, the trust issues a series of bonds that may vary in investment grade, yield, duration, and payment priority. The bonds are then offered to investors, who may purchase such bonds based on the desired level of risk, yield, and duration sought. A CMBS can be attractive to investors, since commercial real estate mortgages are typically more rigidly structured than residential mortgages and consequently carry less risk of uncompensated prepayment, or foreclosure.
Financial analysts are commonly employed to evaluate the merits of an asset being considered for inclusion within a security instrument, using manual analysis and, more recently, computer-aided analysis. Analysts may use standardized and/or proprietary techniques to study myriad properties of applicants, such as asset class, asset value, financial ratios (e.g., debt yield, debt service coverage, and loan-to-value), rate of return, beta (e.g., a correlation between an individual asset and a universe of related assets), risk factors, and creditworthiness. In the case of a CMBS, an analyst may consider such factors as location, identities of the mortgagor and/or mortgagee, credit history of the mortgagor, demographics, comparable property values (e.g., “comps”), tenancy data, and so forth. While ideally these factors are applied in an objective manner, the biases and preconceptions of an analyst may color the asset evaluation process, which may result in less than optimal accuracy of the rating of the securitized instrument. Asset rating may be conducted on behalf of an “applicant” or “issuer”, which may be an underwriting bank or other entity engaged in the securitization of the loans and assets being rated.